ON AILING PUBLIC SECTOR BANKS

AILING PSB’S & ROLE OF BBB

Will the Banks Board Bureau be able to transform ailing public sector banks?

Before proceeding to the article, we must first now more about Bank Board Bureaus.

What are Bank Board Bureaus?

1) Banks Board Bureau is an autonomous body of Union Government of India tasked to improve the governance of Public Sector Banks, recommend selection of chiefs of government owned banks and financial institutions and to help banks in developing strategies and capital raising plans.

2) It has replaced the existing Appointments Board in which appointments for top level jobs at PSBs are made by an appointments committee led by the Reserve Bank of India (RBI) Governor.

3)Composition: The BBB is a body of ’eminent’ professionals and shall consist of only one government official. It is a six members body with at least 3 former bankers, 2 professionals and secretary, department of financial services representing government.

4)Functions: Give recommendations for appointment of full-time Directors as well as non-Executive Chairman of PSBs.

5)Give advice to PSBs in developing differentiated strategies for raising funds through innovative financial methods and instruments and to deal with issues of stressed assets.

6) Guide banks on mergers and consolidations.

KEY POINTS:

The troubles of Indian banking sector don’t seem to end. You name a problem, the sector has it. Weak capital, high bad loans, poor demand, intensifying competition, and many more. There are silver linings though — the Banks Board Bureau with a mission to transform PSBs, and investments which can be monetised to raise capital.

BBB, which came to life in 2016 to help improve the governance standards at staterun banks and help them strategise and raise capital, has not delivered much beyond some cosmetic changes.

The question on the minds of investors and analysts is whether BBB is functioning like a body that would help banks strategise or it has just replaced the appointments committee.

In fact, state-run banks’ struggle worsened in 2016 with more bad loans piling up and recovery remaining elusive. It is a fact that government finances do not permit a fullfledged recapitalisation of banks. The BBB should actively campaign for the scrapping of Acts that prevent government holding going below 51% in banks.

A private sector bank can sell assets to an asset reconstruction company at a 40% discount or even at a lesser rate than what is on books and get away with it. But for a PSU banker, the fear of charges of corruption still looms.

The new year may see capital starved state-owned banks selling family silver (Investments) to raise capital in the run-up to the implementation of the Basel III capital norms. PSU banks, which have been nudged by the finance ministry to divest stake in noncore assets, require Rs 1.8 lakh crore till 2019, out of which Rs 70,000 crore will come from government investment.

MOVING TOWARDS DIGITAL ECONOMY:

The Indian government seems to be in a hurry to get the entire population of over 125 crore on the digital platform, but the road seems to be bumpier.

A major chunk of administrative payments are still being done in cash.

India is a country where 94% of the population is supposed to be in the unorganised sector which draws its payments in cash. As per reports, only 10% of the population has ever used non-cash means of payments.

The biggest hindrance to a digital economy is there being a huge information asymmetry between financial services providers and the consumers. This causes consumers ending up compromising the safety of their accounts and not realising their full potential.

Though as part of the JAM trinity (Jan Dhan, Aadhaar, Mobile), the government not only opened accounts for every household, it is also pushing to make them operational by transferring subsidies to such accounts. But many showing no deposits or transactions reveal that the country still has a long way to go to imbibe the idea of banking.